Kvetch How You Like, Israel's Economy Is Actually Holding Up Well

The pandemic is killing small businesses but the macro indicators remain strong. That could change if the second lockdown is extended

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A pedestrian promenade lined with sidewalk shops in Jerusalem, October 17, 2020.
A pedestrian promenade lined with sidewalk shops in Jerusalem, October 17, 2020. Credit: Eyal Toueg
David Rosenberg
David Rosenberg

A persistent kvetch is not one of the COVID-19 symptoms cited by the World Health Organization. But anyone scanning the headlines of the Israeli media can’t help but notice that it has reached pandemic proportions since the onset of the coronavirus.

Wherever you turn, businesses of all sorts – from self-employed minnows to big corporations, from low-tech to high – are complaining that conditions are terrible. They cry that they’re desperately in need of government aid or, if they are already getting it, it’s too little, too late.

Make no mistake, the complaining isn’t all fake news. But if an economist with foresight had developed a Kvetch Volume Index at the start of the coronavirus crisis it would be showing far sharper increases than the declines we have seen in the actual measures of economic activity.

The issue of government aid for businesses is a good starting point for examining the correlation between kvetching and actual distress. Seemingly businesses are dying like flies, but actual data from the Israel Tax Authority show exactly the opposite: The number of businesses that have closed was down by a third in the first eight months of the year, compared with the same time in 2019.

One reason is that some owners are keeping their businesses formally open in order to collect government assistance, which has amounted to 36 billion shekels ($10.6 billion) as of September. But these are mostly small businesses and probably most of those are self-employed people.

Small businesses are routinely lauded as a major engine of the Israeli economy, but even in normal times, they suffer high rates of business failure. Restaurants are a good example, since the business tends to attract people motivated by reasons other than profit. In Israel, their workforce is mostly youngsters on their way to a real career later, so when a restaurant fails the economic reverberations are small.

In small business, it’s easy come, easy go. Big business is another story.

Needless to say, no one likes big business, especially the biggest. Nevertheless, that’s where the real jobs are – the ones where people make their careers and support families. When a big business goes under, it affects far more lives and takes a bigger toll on the economy. You can reopen a small business like a hair salon or a hardware store relatively easily; it takes a long time and a lot of money to rebuild a company with hundreds of millions of dollars in sales.

Two rough measures of how well Israel's big business is performing in the coronavirus era are unemployment and export figures. Mind you, the numbers aren’t great but they show that after the shock of the first lockdown last spring, the economy has been bouncing back.

Using the government’s broadest unemployment measure, which includes people on unpaid leave who haven’t actually been fired, Israel’s rate dropped from almost 27% in the first half of May to 11.5% in the first half of September. In other words, up to the eve of the second lockdown which was imposed in late September, Israelis were returning to work. 

Merchandise export figures had plunged in the midst of the first lockdown in March to May by an annualized 12.2%. That should come as no surprise. The the world economy had been laid low by the coronavirus and the global trade system had collapsed. But already in June-August, the decline had shrunk to an annualized 7.5%. There were signs that businesses were expecting the recovery to continue because imports of machinery and equipment soared over the summer.

Israel’s tech sector was if anything doing better. Tech exports were actually up an annualized 0.5% in June-August. Startup companies, which have done their fair share of kvetching and have been given government help, completed a record quarter of fundraising – more than $2.7 billion in July-September, a 24% increase over the same time in 2019, according to industry tracker IVC Research.

Tax-collection data offer further proof of exaggerated kvetching. The government is running record deficits but that’s because it is spending record amounts of money fighting off the effects of the pandemic. But tax collections, which are a good a barometer of economic activity, recovered quickly from the first lockdown: After taking into account changes in the tax code and one-time factors, they were up 8.9% in August from a year ago and up 1.2% in September.

Now, however, the time has finally arrived for justifiable kvetching.

It is too early to say what the impact of the second lockdown has been –  it’s only a month old and coincided with the traditional drop in economic activity for the High Holy Days – but it’s fair to assume that the longer it lasts, the more damage it will do.

The Israeli economy showed it was agile enough to recover quickly from the first lockdown. The second one will be more challenging, and not only because the economy has been bruised twice. Confidence in the government’s ability to manage the crisis has suffered a precipitous drop and increasingly looks like many of the world’s economies will be contending with a second lockdown, meaning Israel will lose export customers.

The kvetching shouldn’t yet be about the state of the economy, but about a prime minister whose priorities seem to be first his political survival, second fighting the pandemic and last keeping the economy afloat. It’s getting dangerously late to reorder this list.

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